Question 1

All of the following are true regarding the presentation of current liabilities in the statement of financial position except

Accepted Answer

A) The non-current liabilities section follows the current liabilities section. 
B) Current liabilities may be listed in order of maturity, in descending order of magnitude or in order of liquidity preference. 
C) Current liabilities are generally recorded at their full maturity values. 
D) Current liabilities should not be offset against the assets that will be used to liquidate them. 
A) The non-current liabilities section follows the current liabilities section. 
B) Current liabilities may be listed in order of maturity, in descending order of magnitude or in order of liquidity preference. 
C) Current liabilities are generally recorded at their full maturity values. 
D) Current liabilities should not be offset against the assets that will be used to liquidate them.

Question 2

Ortiz Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2015.Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Ortiz recall all cans of this paint sold in the last six months.The management of Ortiz estimates that this recall would cost $800,000.What accounting recognition, if any, should be accorded this situation?

Accepted Answer

A) No recognition 
B) Note disclosure only 
C) Operating expense of $800,000 and liability of $800,000 
D) Appropriation of retained earnings of $800,000 
A) No recognition 
B) Note disclosure only 
C) Operating expense of $800,000 and liability of $800,000 
D) Appropriation of retained earnings of $800,000

Question 3

Contingent assets are not reported in the statement of financial position.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not considered a characteristic of a liability?

Accepted Answer

A) Present obligation. 
B) Arises from past events. 
C) Results in an outflow of resources. 
D) Liquidation is reasonably expected to require use of existing resources classified as current assets. 
A) Present obligation. 
B) Arises from past events. 
C) Results in an outflow of resources. 
D) Liquidation is reasonably expected to require use of existing resources classified as current assets.

Question 5

Which of the following items is a current liability?

Accepted Answer

A) Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. 
B) Bonds due in three years. 
C) Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. 
D) Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue. 
A) Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. 
B) Bonds due in three years. 
C) Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. 
D) Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.

Question 6

An onerous contract is one in which the unavoidable costs of satisfying the obligations outweigh the economic benefits to be received.

Accepted Answer

A) True 
 B)False

Question 7

Espinosa Co.has a provision to accrue.The amount can only be reasonably estimated within a range of outcomes.No single amount within the range is a better estimate than any other amount.The amount of the accrual should be

Accepted Answer

A) zero. 
B) the mid point of the range. 
C) the minimum of the range. 
D) the maximum of the range. 
A) zero. 
B) the mid point of the range. 
C) the minimum of the range. 
D) the maximum of the range.

Question 8

Which of the following best describes the accounting for assurance-type warranty costs?

Accepted Answer

A) Expensed when paid. 
B) Expensed when warranty claims are certain. 
C) Expensed based on estimate in year of sale. 
D) Expensed when incurred. 
A) Expensed when paid. 
B) Expensed when warranty claims are certain. 
C) Expensed based on estimate in year of sale. 
D) Expensed when incurred.

Question 9

Provisions are only recorded if it is possible that the company will have to settle an obligation at some point in the future.

Accepted Answer

A) True 
 B)False

Question 10

Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a company has a present obligation related to product warranties.The amount of the expense involved can be reasonably estimated.Based on the above facts, the estimated warranty expense should be

Accepted Answer

A) accrued. 
B) disclosed but not accrued. 
C) neither accrued nor disclosed. 
D) classified as an appropriation of retained earnings. 
A) accrued. 
B) disclosed but not accrued. 
C) neither accrued nor disclosed. 
D) classified as an appropriation of retained earnings.

Question 11

Share dividends distributable should be classified on the

Accepted Answer

A) income statement as an expense. 
B) statement of financial position as an asset. 
C) statement of financial position as a liability. 
D) statement of financial position as an item of equity. 
A) income statement as an expense. 
B) statement of financial position as an asset. 
C) statement of financial position as a liability. 
D) statement of financial position as an item of equity.

Question 12

Which of the following statements is correct?

Accepted Answer

A) A company may exclude a short-term obligation from current liabilities if it intends to refinance the obligation on a long-term basis. 
B) A company may exclude a short-term obligation from current liabilities if it has an unconditional right to defer settlement of the liability for at least 12 months. 
C) A company may exclude a short-term obligation from current liabilities if it is paid off after the statement of financial position date and subsequently replaced by long-term debt before the statement of financial position is issued. 
D) None of these answer choices are correct. 
A) A company may exclude a short-term obligation from current liabilities if it intends to refinance the obligation on a long-term basis. 
B) A company may exclude a short-term obligation from current liabilities if it has an unconditional right to defer settlement of the liability for at least 12 months. 
C) A company may exclude a short-term obligation from current liabilities if it is paid off after the statement of financial position date and subsequently replaced by long-term debt before the statement of financial position is issued. 
D) None of these answer choices are correct.

Question 13

A contingent liability

Accepted Answer

A) always exists as a liability but its amount and due date are indeterminable. 
B) is accrued even though not probable. 
C) is always the result of a loss contingency. 
D) is not reported as a liability if not probable. 
A) always exists as a liability but its amount and due date are indeterminable. 
B) is accrued even though not probable. 
C) is always the result of a loss contingency. 
D) is not reported as a liability if not probable.

Question 14

Companies should recognize the expense and related liability for compensated absences in the year earned by employees.

Accepted Answer

A) True 
 B)False

Question 15

Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is a current liability?

Accepted Answer

A) Preference dividends in arrears 
B) A dividend payable in the form of additional shares 
C) A cash dividend payable to preference shareholders 
D) All of these answer choices are correct. 
A) Preference dividends in arrears 
B) A dividend payable in the form of additional shares 
C) A cash dividend payable to preference shareholders 
D) All of these answer choices are correct.

Question 17

Dividends in arrears on cumulative preference shares should be reported as a current liability.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following terms is associated with recognizing a provision?

Accepted Answer

A) Possible but not probable. 
B) Likely. 
C) Remote. 
D) Probable. 
A) Possible but not probable. 
B) Likely. 
C) Remote. 
D) Probable.

Question 19

Which of the following should not be included in the current liabilities section of the statement of financial position?

Accepted Answer

A) Trade notes payable 
B) Short-term zero-interest-bearing notes payable 
C) Unearned revenues 
D) All of these answer choices are included 
A) Trade notes payable 
B) Short-term zero-interest-bearing notes payable 
C) Unearned revenues 
D) All of these answer choices are included

Question 20

Where is debt callable by the creditor reported on the debtor's financial statements?

Accepted Answer

A) Non-current liability. 
B) Current liability if the creditor intends to call the debt within the year, otherwise a non-current liability. 
C) Current liability if it is probable that creditor will call the debt within the year, otherwise a non-current liability. 
D) Current liability. 
A) Non-current liability. 
B) Current liability if the creditor intends to call the debt within the year, otherwise a non-current liability. 
C) Current liability if it is probable that creditor will call the debt within the year, otherwise a non-current liability. 
D) Current liability.

Exam 13: Current Liabilities, Provisions, and Contingencies

All of the following are true regarding the presentation of current liabilities in the statement of financial position except

Contingent assets are not reported in the statement of financial position.

Which of the following is not considered a characteristic of a liability?

Which of the following items is a current liability?

An onerous contract is one in which the unavoidable costs of satisfying the obligations outweigh the economic benefits to be received.

Espinosa Co.has a provision to accrue.The amount can only be reasonably estimated within a range of outcomes.No single amount within the range is a better estimate than any other amount.The amount of the accrual should be

Which of the following best describes the accounting for assurance-type warranty costs?

Provisions are only recorded if it is possible that the company will have to settle an obligation at some point in the future.

Share dividends distributable should be classified on the

Which of the following statements is correct?

A contingent liability

Companies should recognize the expense and related liability for compensated absences in the year earned by employees.

Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio.

Which of the following is a current liability?

Dividends in arrears on cumulative preference shares should be reported as a current liability.

Which of the following terms is associated with recognizing a provision?

Which of the following should not be included in the current liabilities section of the statement of financial position?

Where is debt callable by the creditor reported on the debtor's financial statements?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Non-Current Liabilities

Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Presentation and Disclosure in Financialreporting

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